India’s central bank used currency swaps to drain cash from banks, according to people familiar with the matter, as excess funds in the financial system climbed to a record.
The Reserve Bank of India carried out short-term sell-buy foreign-exchange swaps in the market, some of which mature in October, the people said, declining to be identified as the information is private. They did not elaborate on the size of the deal.
Also Read: RBI may not need immediate CRR hike as liquidity surplus likely to moderate: UBI Report
Under the transactions, the RBI sells dollars to banks for rupees and agrees to buy the US currency back later. This reduces rupee liquidity from the banking system, which surged to around 11 trillion rupees ($115 billion) following massive inflows under the RBI’s recent capital-raising plans.
A spokesperson for the RBI did not immediately respond to an email seeking comment on the matter.
Three-month dollar-rupee onshore forward yields rose 23 basis points to 3% on Wednesday, while six-month yields were up 15 basis points.
